Cruise Lines Face Y2K Conundrum

Monday, December 20, 1999

The world’s biggest cruise lines have made their own computers shipshape against Year 2000 glitches but still face possible electronic squalls arising from problems faced by food vendors and other suppliers.
The lines have spent tens of millions of dollars swapping out software and replacing computers and are now confident the onboard systems controlling propulsion, navigation, elevators and cabin locks will work in 2000, according to the companies, analysts and consultants.
No cruise ship carrying millennium party-goers will lose power and stop dead under a Caribbean moon or partway through the Panama Canal, analysts and consultants said.
And the thriving industry, a Wall Street favorite because aging Americans increasingly choose seagoing holidays, is getting a financial lift by asking and getting premium prices for millennium sailings.
“This is going to be the most profitable week in the history of the cruise industry,” said Gerald Cahill, chief financial officer of sector leader Carnival Corp. “We’d like to schedule a millennium every year.”
But Carnival, Royal Caribbean and other major cruise lines operating out of North America are stopping short of declaring full victory over possible Y2K disruptions caused by computers on Jan. 1 misreading 2000 as the year 1900. Carnival’s biggest Y2K worry is outside vendors, Cahill said.
“They all give you assurances but it’s hard to gauge for yourself,” he said. “We have made certain contingencies, such as lining up alternate vendors. You can take delivery of some supplies ahead of schedule.”
Carnival, whose lines include Holland America, Cunard, Costa Cruises and Carnival Cruise Lines, will spend about $17 million on Y2K fixes, according to a Securities and Exchange Commission filing.
No. 2 cruise operator Royal Caribbean Cruises Ltd. said in a filing it was spending $9.5 million on its Royal Caribbean and Celebrity lines. Another major operator based in Miami, Norwegian Cruise Line, said its Y2K spending would total $4.5 million.
In contrast, the much-bigger $102 billion U.S. lodging industry has already spent $1.1 billion on Y2K compliance, and should pay out another $100 million before Jan. 1, according to consultancy Pricewaterhouse Coopers.
“The public (cruise) companies have done a pretty good job of inventorying their systems and testing them,” said consultant Alan Zingale. “The cruise lines have also done lots of contingency planning.”
Modern cruise ships are immensely complex. In essence, they are full-service hotels feeding, housing and entertaining thousands while moving around the world’s waterways under the power of computer-directed cutting-edge engine technology.
Standing at Miami’s port and watching as Voyager of the Seas — Royal Caribbean’s 3,114-passenger ship christened in November — pulls away is like seeing a Marriott hotel uproot itself and ease down a road.
“The ships at the big lines are all new,” said Robin Farley, cruise analyst with brokerage Deutsche Banc Alex. Brown. “Average fleet age is six or seven years, and a lot of these were built with Year 2000 in mind.”
Potential disruptions for the cruise lines, many of which will have overnight task forces for the millennium changeover, lie mainly with suppliers, both within the United States and at foreign ports, according to Zingale.
Telephones going awry, delays by airlines delivering cruise-ship passengers, or outside refrigeration systems breaking down were some of the possible Y2K problems, he said. “There’s an extra layer of complexity based on the fact everything is moving and going from port to port,” Zingale said. “But they are organized to handle it.”
Cahill said U.S. air carriers seemed to have any Y2K problems solved, and analysts said computers linking them to travel agents who sell 90 percent of their tickets had passed all Y2K tests.
Norwegian Cruise Line, which will have eight ships with 12,000 passengers in the Caribbean and Panama Canal and near Australia at the New Year, said it expects no disturbances but would have staff from all key departments in its Miami headquarters through the holiday.
Royal Caribbean also has said it will have a bulked-up command center operating at the turn of the year, and Carnival will have marine operations and information systems staff at its Miami headquarters, spokeswoman Jennifer de la Cruz said.
Analysts like Farley discount the financial fallout for cruise companies from Y2K spending and mishaps and say the real story about cruise lines at the millennium is the fat prices and good bookings they have secured. “People have shown they are willing to spend more to say they did something special on the millennium,” she said.
Some berths for the millennium were still available, Farley said, relying on a bookings survey that found a seven-day cruise in August that had cost about $1,150 was selling for $2,500 in late November for New Year’s passages. “They are making so much on price they aren’t hurting,” she said. — Maritime Week, 12/20/99 (Michael Connor, Reuters)